In assessing the most important structural reform challenges facing Russia, it is important to bear in mind not only the achievements just described but also the lessons for future reform suggested by Russia’s recent history. First, it is important to note the extent to which the impact of the reforms discussed above did or did not reinforce one another. Thus, it is clear that the benefits of privatisation and competition appear to have been greatest in those sectors where both were present. Similarly, limited progress with respect to issues like the rule of law and corporate governance tended to reduce the beneficial effects of privatisation and undermined the development of the financial system. This suggests that complementarities among different strands of reform are more than just a theoretical issue. Secondly, it is clear from the foregoing that the basic institutional framework of Russia’s new economy is still very much a work in progress. Much more remains to be done to strengthen property rights, establish the rule of law and foster competition in product markets. While the Russian authorities have embarked on some impressive – and often technically complex – ‘second-generation’ reforms in fields such as electricity restructuring, many ‘first-generation’ reforms, concerned with creating the basic institutions of a market economy, have yet to be completed. Perhaps the most fundamental first-generation task is the creation of a legal system on which economic agents can rely for timely, effective enforcement of contracts and protection of property rights.
In general, the most difficult reform challenges have been those concerned with changing, rather than merely reducing, the state’s role in the economy. Thus, measures that require the state to refrain from regulation have generally been relatively easy to implement, once adopted. In particular, the most important liberalising measures of the transition – price and trade liberalisation – were implemented relatively quickly in the early 1990s, albeit with some significant exceptions. It has proved far more difficult to implement reforms that entail the creation of new institutions and new, market-oriented forms of regulation, such as competition policy or the reform of its infrastructure monopolies. Increasingly, these are the challenges that dominate Russia’s reform agenda.
76. PBOYuL is the Russian acronym for predprinimatel’ bez obrazovania iuridicheskogo litsa (‘entrepreneurs without the formation of a legal person’).
77. A great deal of activity that in other countries would be carried out by small companies is in fact done by PBOYuL in Russia.
78. It should be borne in mind that, owing to the limitations of the available data, these estimates are necessarily very rough.
Improving the quality of state institutions is the key priority
By the end of the 1990s, both the Russian authorities and many outside observers had come to regard the reform of state institutions themselves as the most important reform challenge facing Russia. If privatisation, the elimination of subsidies and macroeconomic stabilisation dominated the reform agenda in the early years of the market transformation, attention has in recent years been focused on reforming the
courts, the civil service79 and the major regulatory institutions, as well as recasting relations between the
federal centre and sub-national governments. However, progress in rebuilding state capacities has been very uneven. Since 1998, there has been a dramatic strengthening of the state’s extractive capacities – its ability to tax – and of its rule-making capacity. The latter largely reflects increasing executive dominance of the legislature. However, the same cannot be said of rule enforcement. Doubts about the independence, competence and probity of the courts, the prosecutors and the police persist. Moreover, there remain good reasons to question the ‘relative autonomy’ of the state: state bodies are sometimes penetrated by, or even captive to, particular private interests – if not simply those of the officials who control them. These weaknesses undermine both rule enforcement and the Russian state’s still limited administrative capacities. The state bureaucracy is large, often unresponsive to either the public or its political masters, and riddled with corruption.
These weaknesses impinge directly on the state’s ability to devise, adopt and implement policies that make significant demands on the probity or administrative capacities of the state. This point is of particular relevance when considering the current debates over ‘industrial policy’ and economic ‘diversification’. Whatever the merits of the various proposals for more a more activist industrial policy – and some of them
are far more market-friendly than others80 – there remain good reasons to be sceptical of the bureaucracy’s
ability to implement them. At present, the Russian state performs its most fundamental domestic tasks, from law enforcement to social service provision, relatively poorly. In the absence of a major improvement in its ability to fulfil these essential functions, it is unlikely to be very successful in tackling more technically demanding policy challenges. Building an honest, effective state administration is arguably, therefore, the most important structural reform priority.
It is critical to recognise that successful reform will involve more than simply the recovery of capacities eroded or lost in the 1990s. Russia does not merely need a strong state; it needs a state different
in kind to that which it inherited from the Soviet Union. Soviet administrative bureaucracies were chiefly
concerned with directing economic activities, assigning economic tasks to agents and rewarding (or punishing) them for fulfilment (or non-fulfilment) of those tasks. The role of the state in a market economy, by contrast, is overwhelmingly regulatory. In most cases, the state’s function is not to tell economic agents what ends to pursue but to act as an impartial referee and a provider of public goods in a marketplace full of autonomous actors choosing and pursuing their own ends. Unfortunately, the task- fulfilling mindset of the Soviet bureaucracy is often reflected in the behaviour of its Russian successor. Even after more than a decade of reforms, the state is still prone to rely too much on direct control over assets and intervention in markets; one of the chief aims of reform is to move towards greater reliance on law and regulation instead. Redefining the role of the state thus constitutes an important challenge.
The reform of state institutions in Russia involves a number of distinct strands. First, the general rubric of ‘administrative reform’ encompasses both the reorganisation of federal executive bodies undertaken in early 2004 and civil service reform. Secondly, as noted above, major reform of the judiciary
79. We use the conventional English term ‘civil service’ to refer to the permanent bureaucracy. The Russian term, ‘gosudarstvennaya sluzhba’ is more accurately translated as ‘state service’. As will be argued below, this is not a purely linguistic point, as the difference in emphasis is reflected in the culture of the service. 80. See, e.g. Drebentsov (2004).
was undertaken in 2001.81 The 2001 package marked a major step forward, but much remains to be done to rid the courts of corruption and political influence. Thirdly, there is the on-going redefinition of the relationships among national, regional and local governments. Finally, there is still considerable work ahead in building capacities essential to good policy-making, such as improving the transparency and regularity of the policy process, and building more effective regulatory agencies. The discussion which follows does not attempt to address in detail all of these areas; rather, it aims to outline the nature of the challenges involved and the choices Russian policy-makers face in deciding how to deal with them, particularly in respect to the central issue of how to refashion the state bureaucracy.
The reform of federal executive bodies got off to a rocky start
A much anticipated reorganisation of federal executive bodies was undertaken in March 2004, after several years of debate. In an effort to streamline the government structure, it reorganised the federal executive into three types of institution, assigning a specific role to each:
• Federal Ministries are meant to be policy-making bodies. They engage in policy analysis,
development and evaluation in their respective domains and are responsible for drafting new legislation. They coordinate and monitor the activities of federal services and agencies operating within their jurisdictions. The reform reduced the number of ministries from 23 to 15, in an attempt to streamline government decision-making.
• Federal Services are supervisory and regulatory bodies. Funded from the state budget, they can
issue individual regulations but not normative legal acts.
• Federal Agencies are direct providers of public services to the state and/or private sectors. Their
funding can therefore come in part from charges and fees paid by their ‘customers’.
On the face of it, the reorganisation appears to reflect a desire to separate policy-making, service provision and regulatory functions, which could in principle increase the efficiency of executive bodies while reducing the conflicts of interest that arise when these functions are combined. Unfortunately, there is as yet little evidence that the reorganisation has achieved either of these aims. First, it disrupted the work of many government bodies for much of 2004, as officials were preoccupied with organising the new structures and sorting out their respective roles. Secondly, the regulators continue in some cases to be subordinate to the ministries they regulate. There is still little indication that the Russian authorities are committed to creating regulatory organs that are genuinely independent and properly shielded from outside pressure, whether public or private. The subordination of the new Federal Anti-monopoly Service to the cabinet is a particularly striking instance, since the Service is required to evaluate many of the government’s own acts.
Civil service reform is likely to prove an even greater challenge
The challenge posed by civil service reform in Russia is enormous. The administrative systems inherited from the Soviet regime were in many ways the exact opposite of the ideal of a public bureaucracy
as it is understood in most OECD countries.82 The Western model, as reflected in the writings of Max
Weber, emphasises a strict functional/hierarchical division of labour; the existence of career civil servants as a distinct group, formed on the basis of competitive recruitment and merit-based promotion; and a distinctive rationality based on legality, impartiality, objectivity and regularity; and a public-service ethos. A combination of relatively good salaries and security of tenure, as well as the presence of a relatively
81. For details, see OECD (2004a:88–9) and Tompson (2001). 82. See Goetz (2001:1033).
clear career path, makes returns to investment in skills and tenure good enough to retain able administrators.
The Soviet administrative hierarchy, by contrast, rejected both the separation of political and administrative spheres and the autonomy of the administrative bureaucracy. The state administration was intertwined with, and penetrated by, the ruling party at every level. Recruitment was politicised in principle
(resting on the party-administered ‘nomenklatura’ system)83 and often personalised in practice. The rule-
oriented rationality of the Weberian model was rejected in favour of an overriding emphasis on the implementation of party decisions, which took precedence over legal norms. In the Soviet period, rule violations were often tacitly condoned in the interests of task fulfilment. Thus, Gosarbitrazh, the state body charged with resolving inter-enterprise disputes – and the body from which today’s arbitration courts are descended – was expected to resolve disputes according to the law, subject to the requirements of plan fulfilment. If the law came into conflict with the need to fulfil plan tasks, it was the latter which tended to take precedence. Far from being characterised by a clear functional division of labour, the Soviet system was characterised by complex and often overlapping jurisdictions and lines of authority, which were intended to facilitate monitoring and control of officials by the political leadership. These are all enduring features of Soviet administrative practice: in most respects, the Russian bureaucracy today resembles its Soviet predecessor far more than any Weberian model.
The highly personalised nature of the administrative system inherited from the Soviet state merits particular attention. The Soviet administrative hierarchy, despite its complex and seemingly well defined formal institutions, relied heavily on an informal structure of personal networks within the party-state apparatus to function. Authority was often vested more in persons than in offices. Patron-client ties and the distribution of rewards generally mattered more than the application and enforcement of rules and formalised codes of behaviour. Such personalistic administrative structures tend to weaken state capacities by encouraging rent-seeking and corruption, and by raising the costs of monitoring and enforcement. Russia’s early post-Soviet governments made little headway in addressing this problem. Indeed, such personalistic patterns of authority tend to be replicated by the still common practice whereby senior officials and politicians seek to bolster their authority over the institutions they run by securing the
appointment of trusted personal associates to key posts.84 The implications of this situation for the design
of any civil service reform are explored below.
The personalism which pervades the bureaucracy lies at the heart of one of the paradoxes of post- Soviet Russia: it has a weak state but strong officials. The patronage dispensed by individual officials - particularly those charged with managing state property or large financial flows – can be enormous, while the weakness of the administrative machinery often makes it easy for individual officials to use this power to pursue narrow private or political ends. The Russian state could also be called a weak state with strong
components. A number of specific institutions rate highly on criteria of cohesiveness and effectiveness.85
Yet in the absence of a strong co-ordinating centre, these institutions often pursue narrow institutional interests, working at cross-purposes with each other and with the government itself. This lack of cooperation has indeed been one of the main brakes on administrative reform. It is also the major reason
83. See Voslensky (1984).
84. It is no accident that post-Soviet Russia has seen continuity with respect to such practices: highly personalised administrative systems often emerge in periods of political instability, because they enable political elites to shore up their political positions and enhance the administrative capabilities of new states relatively rapidly. The problem is that they also tend to limit the development of those capabilities beyond a certain point.
85. The central bank, the privatisation agencies and some regional governments all fall into this category. However, the close ties of some of these bodies to specific private sector interests has sometimes raised questions about their autonomy.
for the current concern with restructuring federal executive bodies in such a way as to facilitate more efficient policy-making and better policy implementation.
The Russian bureaucracy has undergone massive change, but little reform since 1991
Not all the pathologies that afflict the Russian bureaucracy can be attributed directly to the Soviet past: more than a decade of transition has also left its mark. The bureaucracy underwent dramatic changes during the 1990s, generally as a result of economic and political developments rather than any reform
strategy:86
• The 1990s witnessed a large-scale exodus of personnel from the bureaucracy. Those most likely
to leave were relatively well qualified mid-career officials, who could command much larger salaries in the private sector. Thus, the civil service today is substantially older and less well educated than its late Soviet counterpart, and mismatches between skills and duties are
increasingly common.87 Moreover, there is clear evidence that the lower echelons of the public
administration are dominated by women and younger workers, while the upper echelons tend to be dominated by older men, the bulk of whom began their administrative careers by about 1985. Turnover among the former is very high, as the structure of the service gives younger officials little incentive to stay, while higher-level officials, many of whom are already pensionable, face
little competitive pressure from below or outside the service.88
• There is compelling evidence that the problem of official corruption has grown markedly worse
since 1991. This reflects a combination of factors, including the breakdown not only of the political and bureaucratic controls that existed in the Soviet system, but also of the norms and
beliefs that (however imperfectly) supported the old order.89 Another critical factor is the very
low pay received by officials, particularly as many low-paid functionaries find themselves disposing of very valuable state assets or managing substantial financial flows. Opportunities for personal enrichment grew dramatically in the post-Soviet period, even as officials’ remuneration declined.
• The size of the bureaucracy has grown, but by no means as rapidly as is widely thought. In fact,
the number of officials employed in public administration grew by just about 13.6 per cent during 1994–2001, with subnational administrations accounting for most of the increase. The balance of this growth occurred among federal employees posted in the regions: the central federal administrative apparatus shrank. The public administration actually employs an unusually small
portion of the labour force when compared with most OECD and transition countries.90 Growth
has partly resulted from the creation of the new agencies needed to regulate a market economy
86. The discussion in this paragraph draws on the analysis found in Huskey and Obolonsky (2003).
87. The ‘graying’ of the state bureaucracy is not unique to Russia; the US General Accounting Office reported in 2002 that more than 30 per cent of the people working for the FBI, the State Department and the Defense Department would be eligible to retire by 2006; Wall Street Journal, 19 September 2002.
88. Brym and Gimpelson (2004:108–10). 89. See Huskey and Obolonsky (2003).
90. See Brym and Gimpelson (2004:92–100) for details. It should be noted that comparisons across time and countries are complicated by problems of definition, including the creation of new types of officials and the reclassification of others in conjunction with the transition.
(the bankruptcy service, the securities regulator, etc), but these bodies are, for the most part, still
relatively small.91
Box 4. Civil service reform, 1992–2004
Civil service reform made little headway in the 1990s. The first steps, taken in 1995, represented a throwback to traditional caste or corporatist views of the bureaucracy, focusing on the status of officials, and their privileges, perquisites and protections. A much more ambitious set of proposals began to be developed from about mid-1997 under the Commission on State Construction (later the Commission on Administrative Reform). A draft strategy which aimed to turn the ‘state service’ into a ‘public service’ – a transformation that would require a dramatic shift in the culture and outlook of Russian officials – included proposals to make the bureaucracy smaller, more transparent and